SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
Mark One
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended September 30, 2001
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OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from to
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Commission file number 000-21430
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Riviera Holdings Corporation
- -------------------------------------------------------------------------------
(Exact name of Registrant as specified in its charter)
Nevada 88-0296885
(State or other jurisdiction (IRS Employer Identification No.)
of incorporation or organization)
2901 Las Vegas Boulevard South, Las Vegas, Nevada 89109
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number,
including area code (702) 794-9527
- -------------------------------------------------------------------------------
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes------- No-----
APPLICABLE ONLY TO REGISTRANTS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE LAST FIVE YEARS
Indicate by check mark whether the Registrant has filed all documentation
and reports required to be filed by Section 12, 13, or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court. Yes---- No-------
APPLICABLE ONLY TO CORPORATE REGISTRANTS
Indicate the number of shares outstanding of each of the Registrant's
classes of common stock, as of the latest practicable date.
As of November 1, 2001, there were 3,556,723 shares of Common Stock, $.001 par
value per share, outstanding.
RIVIERA HOLDINGS CORPORATION
INDEX
Page
PART I. FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements
Independent Accountants' Report 2
Condensed Consolidated Balance Sheets at September 30, 2001 (Unaudited)
and December 31, 2000 3
Condensed Consolidated Statements of Operations (Unaudited) for the
Three and Nine months ended September 30, 2001 and 2000 4
Condensed Consolidated Statements of Cash Flows (Unaudited) for the
Three and Nine Months ended September 30, 2001 and 2000 5
Notes to Condensed Consolidated Financial Statements (Unaudited) 6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 16
Item 3. Quantitative and Qualitative Disclosures about Market Risk 28
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 29
Signature Page 30
Exhibits - None 31
1
INDEPENDENT ACCOUNTANTS' REPORT
To the Board of Directors
Riviera Holdings Corporation
We have reviewed the accompanying condensed consolidated balance sheet of
Riviera Holdings Corporation (the "Company") and subsidiaries as of September
30, 2001, and the related condensed consolidated statements of operations and of
cash flows for the three and nine months ended September 30, 2001 and 2000.
These financial statements are the responsibility of the Company's management.
We conducted our review in accordance with standards established by the American
Institute of Certified Public Accountants. A review of interim financial
information consists principally of applying analytical procedures to financial
data and of making inquiries of persons responsible for financial and accounting
matters. It is substantially less in scope than an audit conducted in accordance
with auditing standards generally accepted in the United States of America, the
objective of which is the expression of an opinion regarding the financial
statements taken as a whole. Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications that should
be made to such condensed consolidated financial statements for them to be in
conformity with accounting principles generally accepted in the United States of
America.
We have previously audited, in accordance with auditing standards generally
accepted in the United States of America, the consolidated balance sheet of
Riviera Holdings Corporation as of December 31, 2000, and the related
consolidated statements of operations, shareholders' equity, and cash flows for
the year then ended (not presented herein); and in our report dated February 14,
2001, we expressed an unqualified opinion on those consolidated financial
statements. In our opinion, the information set forth in the accompanying
condensed consolidated balance sheet as of December 31, 2000, is fairly stated,
in all material respects, in relation to the consolidated balance sheet from
which it has been derived.
DELOITTE & TOUCHE LLP
October 24, 2001
Las Vegas, Nevada
2
RIVIERA HOLDINGS CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(In Thousands, except share amounts)
- ---------------------------------------------------------------------------------------------
September 30, December 31,
2001 2000
ASSETS (unaudited)
CURRENT ASSETS:
Cash and cash equivalents $ 44,115 $ 52,174
Accounts receivable, net 3,647 5,548
Inventories 2,228 3,342
Prepaid expenses and other assets 3,716 4,599
-------------------------------
Total current assets 53,706 65,663
PROPERTY AND EQUIPMENT, Net 203,233 207,030
OTHER ASSETS, Net 6,860 8,128
DEFERRED INCOME TAXES 4,063 2,889
-------------------------------
TOTAL $ 267,862 $ 283,710
===============================
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of long-term debt $ 3,082 $ 2,871
Accounts payable 8,505 9,731
Accrued interest 4,725 7,727
Accrued expenses 14,476 16,731
-------------------------------
Total current liabilities 30,788 37,060
-------------------------------
OTHER LONG-TERM LIABILITIES 7,302 6,533
-------------------------------
LONG-TERM DEBT, Net of current portion 217,620 223,172
-------------------------------
SHAREHOLDERS' EQUITY:
Common stock ($.001 par value; 20,000,000 shares
authorized; 5,106,776 and 5,106,776 shares issued at
September 30, 2001 and December 31, 2000, respectively) 5 5
Additional paid-in capital 13,485 13,446
Treasury stock (1,671,335 shares and 1,431,648 shares at
September 30, 2001 and December 31, 2000, respectively) (11,237) (9,633)
Retained earnings 9,899 13,127
--------------------------------
Total stockholders' equity 12,152 16,945
--------------------------------
TOTAL $ 267,862 $ 283,710
================================
See notes to condensed consolidated financial statements
3
RIVIERA HOLDINGS CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2001 AND 2000
Three Months Ended Nine Months Ended
(In thousands, except per share amounts) September 30, September 30,
- -----------------------------------------------------------------------------------------------------------------------
(unaudited)
REVENUES: 2001 2000 2001 2000
---- ---- ---- ----
Casino $ 29,880 $ 26,909 $ 88,194 $ 81,341
Rooms 9,987 9,861 34,458 32,414
Food and beverage 7,814 7,630 24,224 23,678
Entertainment 5,483 6,008 17,246 18,571
Other 2,211 2,572 7,138 7,989
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Total revenues 55,375 52,980 171,260 163,993
Less promotional allowances 4,330 3,573 13,188 11,952
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Net revenues 51,045 49,407 158,072 152,041
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COSTS AND EXPENSES:
Direct costs and expenses of operating departments:
Casino 16,459 14,839 48,570 43,175
Rooms 5,920 5,769 18,148 17,625
Food and beverage 5,626 5,398 16,628 16,192
Entertainment 3,924 4,731 12,311 14,316
Other 812 832 2,420 2,416
Other operating expenses:
General and administrative 10,907 10,806 32,326 30,490
Preopening expenses-Black Hawk, Colorado 1,222
Depreciation and amortization 4,384 4,601 12,930 13,243
----------------------------------------------------------
Total costs and expenses 48,032 46,976 143,333 138,679
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INCOME FROM OPERATIONS 3,013 2,431 14,739 13,362
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OTHER (EXPENSE) INCOME :
Interest expense (6,649) (6,919) (20,180) (20,764)
Interest income 308 787 1,062 1,921
Interest capitalized 616
Other, net 9 (40) (23) 1,150
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Total other expense (6,332) (6,172) (19,141) (17,077)
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INCOME(LOSS) BEFORE BENEFIT FOR INCOME TAXES (3,319) (3,741) (4,402) (3,715)
BENEFIT FOR INCOME TAXES 819 1,383 1,174 1,481
----------------------------------------------------------
NET INCOME (LOSS) $ (2,500) $ (2,358) $ (3,228) $ (2,234)
==========================================================
EARNINGS (LOSS) PER SHARE DATA:
Earnings (loss) per share:
Basic $ (0.71) $ (0.61) $ (0.89) $ (0.55)
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Diluted $ (0.71) $ (0.61) $ (0.89) $ (0.55)
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Weighted-average common shares outstanding 3,513 3,895 3,618 4,060
----------------------------------------------------------
Weighted-average common and common equivalent shares 3,513 3,895 3,618 4,060
----------------------------------------------------------
See notes to condensed consolidated financial statements
4
RIVIERA HOLDINGS CORPORATION AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited) Three Months Ended Nine Months Ended
September 30, September 30,
2001 2000 2001 2000
-----------------------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Loss $ (2,500) $ (2,358) $ (3,228) $ (2,234)
Adjustments to reconcile net loss to net cash (used in) and
provided by operating activities:
Depreciation and amortization 4,384 4,601 12,930 13,243
Provision for bad debts 16 (54) 155 103
Provision for gaming discounts (49) (70)
Interest expense 6,649 6,919 20,180 20,763
Interest paid (9,076) (9,091) (20,950) (21,403)
Capitalized interest on construction projects (616)
Changes in operating assets and liabilities:
Decrease (increase) in accounts receivable 14 (1,213) 1,816 (834)
Decrease in inventories 319 8 1,114 577
Decrease (increase) in prepaid expenses
and other assets 578 (267) 882 (86)
Decrease in accounts payable (1,315) (1,270) (1,363) (2,793)
Increase (decrease) in accrued liabilities 2,565 2,027 (2,255) 2,272
Decrease in deferred income taxes (819) (1,489) (1,174) (1,520)
Increase in deferred compensation plan liability 76 570
Increase (decrease) in non-qualified pension plan obligation
to CEO upon retirement (125) 299 (375) 931
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Net cash provided by (used in) operating activities 717 (1,888) 8,232 8,403
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CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures for property and equipment, Las Vegas, Nevada (2,312) (1,634) (6,907) (5,257)
Capital expenditures - Black Hawk, Colorado (613) (525) (2,207) (13,953)
Capitalized Interest on construction projects 616
Purchase of short term investments 2,161 10,325
Decrease Black Hawk, Colorado restricted funds 4,509 9,992
Decrease (increase) in other assets (27) 442 (42) 977
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Net cash provided by (used in) investing activities (2,952) 4,953 (9,156) 2,701
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CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from long-term borrowings 34 9,552
Payments on long-term borrowings (702) (952) (2,072) (1,732)
Purchase of treasury stock (921) (863) (970) (5,288)
Increase in paid-in capital 41
Purchase of deferred comp treasury stock (582) (775)
Purchase of Black Hawk 13% 1st Mortgage Notes (1,000) (3,500)
Issuance of restricted stock 25 141
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Net cash (used in) provided by financing activities (3,180) (1,781) (7,135) 2,532
-----------------------------------------------------------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (5,415) 1,284 (8,059) 13,636
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD $ 49,530 $ 55,157 $ 52,174 $ 42,804
-----------------------------------------------------------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 44,115 $ 56,440 $ 44,115 $ 56,440
===========================================================
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION --
Income Taxes paid - Colorado Income Tax $ 40 $ 100
SEE NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
5
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
Riviera Holdings Corporation and its wholly-owned subsidiary, Riviera Operating
Corporation ("ROC") (together, the "Company"), were incorporated on January 27,
1993, in order to acquire all assets and liabilities of Riviera, Inc.
Casino-Hotel Division on June 30, 1993, pursuant to a plan of reorganization.
In August 1995, Riviera Gaming Management, Inc. ("RGM") incorporated in the
State of Nevada as a wholly-owned subsidiary of ROC for the purpose of obtaining
management contracts in Nevada and other jurisdictions. In March 1997 Riviera
Gaming Management of Colorado was incorporated in the State of Colorado, and in
August 1997 Riviera Black Hawk, Inc. ("RBH") was incorporated in the State of
Colorado for the purpose of developing a casino in Black Hawk, Colorado which
opened February 4, 2000.
Nature of Operations
The Company owns and operates the Riviera Hotel & Casino ("Riviera Las Vegas")
on the Strip in Las Vegas, Nevada and in February of 2000, opened its casino in
Black Hawk, Colorado ("Riviera Black Hawk"). Riviera Black Hawk is owned through
Riviera Black Hawk, Inc. ("RBH"), a wholly- owned subsidiary of ROC. Riviera
Gaming Management of Colorado, Inc. is a wholly-owned subsidiary of RGM, and
manages the casino. RGM provided services to Peninsula Gaming Partners LLC with
respect to that Company's riverboat, Diamond Jo, operating in Dubuque, Iowa
until the third quarter of 2000 when the contract was canceled.
Casino operations are subject to extensive regulation in the states of Nevada
and Colorado and various state and local regulatory agencies. Management
believes that the Company's procedures for supervising casino operations,
recording casino and other revenues, and granting credit comply, in all material
respects, with the applicable regulations.
Special Factors Affecting Comparability of Results of Operations
The Riviera Black Hawk was in the development stage during the first quarter of
2000 until February 4, 2000 when it opened the casino. Accordingly, the results
of operations for the fiscal 2001 and fiscal 2000 results may not be comparable.
Principles of Consolidation
The consolidated financial statements include the accounts of the Company, its
wholly-owned subsidiary ROC and various indirect wholly-owned subsidiaries. All
material intercompany accounts and transactions have been eliminated.
6
The financial information at September 30, 2001 and for the three months
and nine months ended September 30, 2001 and 2000 is unaudited. However, such
information reflects all adjustments (consisting solely of normal recurring
adjustments) that are, in the opinion of management, necessary for a fair
presentation of the financial position, results of operations, and cash flows
for those interim periods. The results of operations for the three months and
nine months ended September 2001 are not necessarily indicative of the results
that will be achieved for the entire year.
These financial statements should be read in conjunction with the audited
consolidated financial statements and notes thereto for the year ended December
31, 2000, included in the Company's Annual Report on Form 10K.
Estimates and Assumptions
The preparation of condensed consolidated financial statements in conformity
with accounting principles generally accepted in the United States of America
requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities, disclosure of contingent assets and
liabilities at the date of the financial statements, and the reported amounts of
revenues and expenses during the reporting period. Significant estimates used by
the Company include estimated useful lives for depreciable and amortizable
assets, deferred tax assets, certain accrued liabilities and the estimated
allowance for receivables. Actual results may differ from estimates.
Earnings Per Share
Basic per share amounts are computed by dividing net income (loss) by weighted
average shares outstanding during the period. Diluted net income per share
amounts are computed by dividing net income by weighted average shares
outstanding plus the dilutive effect of common share equivalents. The effect of
options outstanding was not included in diluted calculations for the three
months and nine months ended September 30, 2001 and 2000 since the Company
incurred a net loss in each period.
Reclassifications
Certain amounts have been reclassified in the accompanying financial statements
to conform with current period presentation.
Recently Adopted Accounting Standards
The Financial Accounting Standards Board ("FASB") issued Statement of Financial
Accounting Standards ("SFAS") No. 133, "Accounting for Derivatives," which is
effective for fiscal years beginning after June 15, 2000. This statement
defines derivatives and requires qualitative disclosure of certain financial and
descriptive information about a company's derivatives. The Company adopted SFAS
No. 133 in the quarter ending March 31, 2001. The adoption of SFAS 133 had no
impact on the Company or the Company's consolidated financial statements.
7
The Emerging Issues Task Force ("EITF") of the American Institute of Certified
Public Accountants issued EITF No. 00-22 titled "Accounting for "Points" and
Certain Other Timed-Based Sales Incentive Offers, and Offers for Free Products
or Services to Be Delivered in the Future" on January 18, 2001. The EITF
concluded that when a company or vendor offers to a customer (a) free or
discounted products or services that will be delivered (either by the vendor or
by another unrelated entity) at a future date (1) as a result of a single
revenue transaction with the customer or (2) only if the customer completes a
specified cumulative level of revenue transactions with the vendor or remains a
customer of the vendor for a specified time period and (b) a rebate or refund of
a determinable cash amount only if the customer completes a specified cumulative
level of revenue transactions with the vendor or remains a customer of the
vendor for a specified time period, such rebates should be reported as a
reduction of revenues. This EITF was required to be adopted by the Company
during the first quarter of 2001. As a result of adopting EITF 00-22, the
Company reclassified approximately $1.1 million and $1.5 million respectively of
such "Points" from Casino operating expense to net against Casino revenues
for the three months and nine months ended September 30, 2000.
The Emerging Issues Task Force of the American Institute of Certified Public
Accountants ("EITF") issued EITF No. 00-14 Titled "Accounting for Certain Sales
Incentives" on April 18, 2001. The Company offers such sales incentives as "Cash
Vouchers". The EITF concluded that when a company or vendor offers its customers
sales incentives including discounts, coupons, rebates, and free products or
services, such sales incentives should be reported as a reduction of revenues.
This EITF is required to be adopted by the Company during the fourth quarter of
2001 and early adoption is permitted. The Company chose to adopt this EITF in
the first quarter of 2001. As a result of adopting EITF 00-14, the Company
reclassified approximately $833,000 and $1.5 million respectively of such sales
incentive offers "Cash Vouchers" from Casino operating expense to net against
Casino revenues for the three months and nine months ended September 30, 2000.
Recently Issued Accounting Standards
In July 2001, the Financial Accounting Standards Board ("FASB") issued Statement
of Financial Accounting Standards No. 141 ("SFAS 141"), "Business Combinations."
SFAS 141 requires the purchase method of accounting for business combinations
initiated after June 30, 2001 and eliminates the pooling-of-interests method.
The Company does not believe that the adoption of SFAS 141 will have a
significant impact on its financial statements.
In July 2001, the FASB issued SFAS No.142 ("SFAS 142"), "Goodwill and Other
Intangible Assets", which is effective January 1, 2002. SFAS 142 requires, among
other things, the discontinuance of goodwill amortization. In addition, the
standard includes provisions for the reclassification of certain existing
recognized intangibles as goodwill, reassessment of the useful lives of existing
recognized intangibles, reclassification of certain intangibles out of
previously reported goodwill and the identification of reporting units for
purposes of assessing potential future impairments of goodwill. SFAS 142 also
requires the Company to complete a transitional goodwill impairment test six
months from the date of adoption. The Company is currently assessing but has not
yet determined the impact of SFAS 142 on its financial position and results of
operations.
8
The FASB issued SFAS No. 143 Accounting for Asset Retirement Obligations in
June of 2001. This Statement addresses financial accounting and reporting for
obligations associated with the retirement of tangible long-lived assets and the
associated asset retirement costs. This Statement applies to all entities. It
applies to legal obligations associated with the retirement of long-lived assets
that result from the acquisition, construction, development and (or) the normal
operation of a long-lived asset, except for certain obligations of lessees. This
Statement is effective for financial statements issued for fiscal years
beginning after June 15, 2002. The Company is currently assessing, but has not
yet determined the impact of SFAS No. 143 on its financial position and results
of operations.
The FASB issued SFAS No. 144 Accounting for the Impairment or Disposal of
Long-Lived Assets in August of 2001. This Statement address financial
accounting and reporting for the impairment or disposal of long-lived assets and
supersedes FASB Statement No. 121, Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to Be Disposed Of, and the accounting and
reporting provisions of APB Opinion No. 30, Reporting the Results of
Operations-Reporting the Effects of Disposal of a Segment of a Business, and
Extraordinary, Unusual and Infrequently Occurring Events and Transactions, for
the disposal of a segment of a business (as previously defined in that Opinion).
This Statement also amends ARB No. 51, Consolidated Financial Statements, to
eliminate the exception to consolidation for a subsidiary for which control is
likely to be temporary. The provisions of this Statement are effective for
financial statements issued for fiscal years beginning after December 15, 2001,
and interim periods within those fiscal years. The Company is currently
assessing, but has not yet determined the impact of SFAS No. 144 on its
financial position and results of operations.
2. LONG TERM DEBT AND COMMITMENTS
On August 13, 1997, the Company issued 10% First Mortgage Notes (the 10% Notes)
with a principal amount of $175 million. The Notes were issued at a discount in
the amount of $2.2 million. The discount is being amortized over the life of the
10% Notes on a straight-line basis which approximates the effective interest
method.
On June 3, 1999, Riviera Black Hawk, Inc. ("RBH"), a wholly-owned subsidiary,
closed a $45 million private placement of 13% First Mortgage Notes, ("the 13%
Notes"). The net proceeds of the placement were used to fund the completion of
RBH's casino project in Black Hawk, Colorado. The Company has not guaranteed the
$45 million RBH 13% Notes, but has agreed to a "Keep Well" of $5 million per
year (or an aggregate limited to $10 million) for the 3 years of RBH operations
beginning with the second quarter of 2000 to cover (i) the $5.85 million
interest on such Notes if not paid by RBH and (ii) the amount by which RBH cash
flow is less than $9.0 million per year as follows:
Operating Period #1 April 1, 2000-December 31, 2000 $6.75 Million
Operating Period #2 January 1, 2001-December 31, 2001 $9.0 Million
Operating Period #3 January 1, 2002-December 31, 2002 $9.0 Million
Operating Period #4 January 1, 2003-March 31, 2003 $2.25 Million
9
On February 14, 2001, the Company advanced approximately $3.0 million to RBH
under this agreement for Operating Period #1 which was used to acquire $2.5
million of the 13% Black Hawk Notes. Based upon the nine months results at
September 30, 2001 management believes there are or will be no additional Keep
Well amounts due on an annualized basis.
During 2001, the Company has repurchased a total of $3.5 million of the 13%
Notes at par.
3. LEGAL PROCEEDINGS
The Company is a party to several routine lawsuits, both as plaintiff and as
defendant, arising from the normal operations of a hotel. The Company does not
believe that the outcome of such litigation, in the aggregate, will have a
material adverse effect on its financial position or results of its operations.
4. STOCK REPURCHASES
Treasury stock purchases totaled 152,437 shares at an average of $6.37 per share
for the first nine months of 2001. The Deferred Compensation Trust purchased
115,359 shares of Company stock on the open market at an average cost of $6.72
per share during the first nine months of 2001.
5. ISSUANCE OF RESTRICTED STOCK
There were 4,065 shares of Treasury Stock at a cost of $6.15 per share issued
under the Restricted Stock Plan for executive compensation in the third quarter
of 2001 and 5,923 issued in October 2001 at a cost of $4.22 per share. A total
of 34,031 shares of restricted stock have been issued since inception of the
plan on January 1, 2001. The stock has restrictions as to when it can be traded
or sold by its holders, primarily the shares cannot be sold until the executive
terminates his or her employment with the Company.
6. OTHER (EXPENSE) INCOME, NET
Other (expense) income, net includes an insurance recovery of $1.2 million for
litigation costs on the Paulson and Morgens Waterfall litigation which was
received in the first quarter 2000. Such costs were incurred primarily in 1998
and 1999.
7. GUARANTOR INFORMATION
The Company's 10.0% First Mortgage Notes are guaranteed by a majority
of the Company's wholly- owned existing significant subsidiaries. These
guaranties are full, unconditional, joint and several. The following
consolidating schedules present separate condensed financial statement
information on a combined basis for the parent only, as well as the Company's
guarantor subsidiaries and non-guarantor subsidiaries, as of and for the nine
months ended September 30, 2001.
10
RIVIERA HOLDINGS CORPORATION
CONDENSED CONSOLIDATING BALANCE SHEET INFORMATION
SEPTEMBER 30, 2001
(unaudited) Combined
Parent Combined Non- Elimination Combined
Only Guarantors Guarantors Entries Totals
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 12,201 $ 21,187 $ 10,727 $ - $ 44,115
Current assets 8,624 967 9,591
------ ------- ------ ------- -------
Total current assets 12,201 29,811 11,694 53,706
PROPERTY AND EQUIPMENT, Net 133,093 2,194 67,946 203,233
OTHER ASSETS, Net 2,493 2,246 2,121 6,860
INVESTMENT IN SUBSIDIARIES 42,469 33,083 (75,552) (1) 0
DEFERRED INCOME TAXES 2,032 2,031 4,063
------ ------- ------ -------- -------
TOTAL $ 190,256 $ 69,366 $ 83,792 $ (75,552) (1) $ 267,862
======= ======= ====== ======== =======
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of long-term debt $ - $ 1,172 $ 1,910 $ - $ 3,082
Due to parent company 24,716 2,753 (27,469) (1) 0
Accounts payable 3,784 4,721 8,505
Accrued interest 2,188 1 2,536 4,725
Accrued expenses 12,944 1,532 14,476
------ ------- ------ -------- -------
Total current liabilities 2,188 42,617 13,452 (27,469) (1) 30,788
------ ------- ------ -------- -------
OTHER LONG-TERM LIABILITIES 7,302 7,302
------ ------- ------ ------- -------
LONG-TERM DEBT, NET OF CURRENT PORTION 174,116 2,643 40,861 217,620
------ ------- ------ ------- -------
STOCKHOLDERS EQUITY:
Common stock 5 5
Additional paid-in capital 11,283 17,528 32,757 (48,083) (1) 13,485
Treasury stock (10,462) (775) (11,237)
Retained earnings 13,125 51 (3,278) 9,899
------ ------- ------ ------- -------
Total stockholders equity 13,951 16,804 29,479 (48,083) (1) 12,152
------ ------- ------ ------- -------
TOTAL $ 190,255 $ 69,366 $ 83,792 $ (75,552) $ 267,862
======= ======= ======= ======== =======
Elimination entries -
(1) To eliminate investment in and advances to subsidiaries
11
RIVIERA HOLDINGS CORPORATION
CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS INFORMATION
For the Nine Months Ended September 30, 2001
(unaudited) Combined
Parent Combined Non- Elimination Combined
Only Guarantors Guarantors Entries Totals
REVENUES:
Casino $- $ 53,554 $ 34,640 $- $ 88,194
Rooms 34,458 34,458
Food and beverage 20,286 3,938 24,224
Entertainment 17,021 225 17,246
Other 6,788 350 7,138
Management fee 22,713 (22,713)(1)
------ ------- ------ ------- -------
Total revenues 22,713 132,107 39,153 (22,713)(1) 171,260
Less promotional allowances 10,473 2,715 13,188
------ ------- ------ ------- -------
Net revenues 22,713 121,634 36,438 (22,713)(1) 158,072
------ ------- ------ ------- -------
COSTS AND EXPENSES:
Direct costs and expenses of
operating departments:
Casino 31,529 17,041 48,570
Rooms 18,148 18,148
Food and beverage 15,136 1,492 16,628
Entertainment 12,244 67 12,311
Other 2,420 2,420
Other operating expenses:
General and administrative 23,497 8,829 32,326
Management fees 22,022 992 (23,014)(1) 0
Depreciation and amortization 8,735 1,429 2,766 12,930
------ ------- ------ ------- -------
Total costs and expenses 8,735 126,425 31,187 (23,014)(1) 143,333
------ ------- ------ ------- -------
INCOME (LOSS) FROM OPERATIONS 13,978 (4,490) 5,251 14,739
------ ------- ------ ------- -------
OTHER (EXPENSE) INCOME:
Interest expense (14,203) (888) (5,089) (20,180)
Interest income 225 764 73 1,062
Other, net (23) (23)
------ ------- ------ ------- -------
Total other (expense) income (13,978) (147) (5,016) (19,141)
LOSS BEFORE INCOME TAX BENEFIT (4,637) 235 (4,402)
(BENEFIT) FOR INCOME TAXES 1,268 (94) 1,174
------ ------- ------ ------- -------
NET LOSS $ - $ (3,369) $ 141 $ - $ (3,228)
====== ======= ====== ======= =======
Elimination entries -
(1) To eliminate intercompany revenue and expense.
12
CONDENSED CONSOLIDATED STATEMENTS Combined
OF CASH FLOWS INFORMATION FOR THE NINE Parent Combined Non- Elimination Combined
MONTHS ENDED SEPTEMBER 30, 2001 Only Guarantors Guarantors Entries Total
CASH FLOWS FROM OPERATING ACTIVITIES:
(unaudited)
Net income (loss) $ - $ (3,369) $ 141 $ - $ (3,228)
Adjustments to reconcile net income (loss) to net cash (used in)
provided by operating activities:
Depreciation and amortization 8,735 1,429 2,766 12,930
Provision for bad debts 91 64 155
Provision for gaming discounts (70) (70)
Interest expense 14,203 888 5,089 20,180
Interest paid (13,125) (4,672) (3,153) (20,950)
Changes in operating assets and liabilities:
Increase (decrease) in accounts receivable, net 2,014 (198) 1,816
Decrease (increase) in inventories 1,025 89 1,114
Increase (decrease) in prepaid expenses and other assets 804 78 882
Increase (decrease) in accounts payable (2,798) 1,435 (1,363)
Increase (decrease) in accrued expenses (2,799) 544 (2,255)
Increase (decrease) in deferred income taxes (1,268) 94 (1,174)
Increase in deferred compensation plan liability 570 570
Decrease in non-qualified pension plan obligation
to CEO upon retirement (375) (375)
Net cash provided by (used in) operating activities ------- --------- -------- -------- --------
9,813 (8,530) 6,949 8,232
------- --------- -------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures for property and equipment - Las Vegas (6,907) (6,907)
Capital expenditures for property and equipment - Black Hawk (2,207) (2,207)
Decrease (increase) in other assets (8,781) 8,767 (28) (42)
------- --------- ------- -------- --------
Net cash (used in) provided by investing activities (8,781) 1,860 (2,235) 0 (9,156)
------- --------- ------- -------- --------
CASH FLOW FROM FINANCING ACTIVITIES:
Proceeds from long-term borrowings
Payments on long-term borrowings (796) (1,276) (2,072)
Purchase of treasury stock (970) (970)
Increase in paid in capital 41 41
Purchase of deferred comp treasury stock (775) (775)
Issuance of restricted stock 141 141
Purchase of 1st Mortgage Notes - Black Hawk (3,500) (3,500)
Contribution of capital to Black Hawk, Inc. (3,045) 3,045 0
------- --------- -------- -------- -------
Net cash (used in) financing activities (788) (4,616) (1,731) 0 (7,135)
------- --------- -------- -------- --------
(DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS 244 (11,286) 2,983 (8,059)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 11,957 32,473 7,744 52,174
------- --------- -------- -------- --------
CASH AND CASH EQUIVALENTS, END OF PERIOD $12,201 $ 21,187 $ 10,727 $ - $ 44,115
======= ========= ======== ======== ========
13
8. SEGMENT DISCLOSURES
At December 31, 2000, the Company adopted a management review process by its
geographic gaming market segments: Riviera Las Vegas and Riviera Black Hawk.
Since the management division represents all other revenue, it is also shown.
Due to this change in management's review of operating results, all
corresponding prior years' data has been restated to reflect the current review
process. All intersegment revenues have been eliminated.
Three months ended Nine months ended
September 30, September 30,
(Dollars in thousands) 2001 2000 2001 2000
(Restated) (Restated)
Net revenues:
Riviera Las Vegas $37,567 $39,883 $121,634 $126,139
Riviera Black Hawk 13,478 9,494 36,438 25,670
Riviera Gaming Management 0 30 0 232
---------- ----------- ------------ ---------
Total net revenues $ 51,045 $49,407 $ 158,072 $152,041
========== =========== ============ =========
Income from operations:
Riviera Las Vegas $716 $2,347 $9,488 $12,314
Riviera Black Hawk 2,297 54 5,251 960
Riviera Gaming Management 0 30 0 88
---------- ----------- ------------ ---------
Total income from operations $3,013 $2,431 $14,739 $13,362
========== =========== ============ =========
EBITDA (1):
Riviera Las Vegas $3,749 $5,979 $18,660 $23,011
Riviera Black Hawk 3,648 1,023 9,009 4,729
Riviera Gaming Management 0 30 0 87
---------- ----------- ------------ ---------
Total EBITDA $7,397 $7,032 $27,669 $27,827
========== =========== ============ =========
EBITDA margin:
Riviera Las Vegas 10.0% 15.0% 15.3% 18.2%
Riviera Black Hawk 27.1% 10.8% 24.7% 18.4%
Riviera Gaming Management 100.0% 37.9%
---------- ----------- ------------ ---------
Total EBITDA 14.5% 14.2% 17.5% 18.3%
========== =========== ============ =========
(1)EBITDA consists of earnings before interest, income taxes, depreciation,
amortization, preopening expenses, and Other, net. While EBITDA should not be
construed as a substitute for operating income or a better indicator of
liquidity than cash flow from operating activities, which are determined in
accordance with generally accepted accounting principles ("GAAP"), it is
included herein to provide additional information with respect to the ability of
the Company to meet its future debt service, capital expenditure and working
capital requirements. Although EBITDA is not necessarily a measure of the
Company's ability to fund its cash needs, management believes that certain
investors find EBITDA to be a useful tool for measuring the ability of the
Company to service its debt. EBITDA margin is EBITDA as a percent of net
revenues. The Company's definition of EBITDA may not be comparable to other
companies' definitions.
14
September 30, December 31,
2001 2000
Assets (2):
Riviera Las Vegas $135,287 $ 138,525
Riviera Black Hawk 67,946 68,505
Riviera Gaming Management
--------------- ----------------
Total assets $203,233 $ 207,030
=============== ================
(2) Assets represent property and equipment and intangible assets, net of
accumulated depreciation and amortization.
RIVIERA LAS VEGAS REVENUES
The primary marketing of the Riviera Las Vegas is not aimed toward residents of
Las Vegas, Nevada. Significantly all revenues derived from patrons visiting the
Riviera Las Vegas are from other parts of the United States and other countries.
Revenues for Riviera Las Vegas from a foreign country or region may exceed 10
percent of all reported segment revenues; however, the Riviera Las Vegas cannot
identify such information, based upon the nature of gaming operations.
RIVIERA BLACK HAWK REVENUES
The casino in Black Hawk, Colorado, primarily serves the residents of
metropolitan Denver, Colorado. As such, management believes that significantly
all revenues are derived from within 250 miles of that geographic area.
MANAGEMENT AGREEMENTS
RBH has entered into a management agreement (the "RBH Management Agreement")
with Riviera Gaming Management of Colorado, Inc. (the "Manager"), a wholly-owned
subsidiary of Riviera Holdings Corporation, which, in exchange for a fee,
manages RBH. The management fee consists of a revenue fee and a performance fee.
The revenue fee is based on 1 percent of net revenues (gross revenue less
complimentaries) and is paid quarterly in arrears. The performance fee is based
on the following percentages of EBITDA, whose components are derived from
amounts calculated using generally accepted accounting principles: (1) 10
percent of EBITDA from $5 million to $10 million, (2) 15 percent of EBITDA from
$10 million to $15 million, and (3) 20 percent of EBITDA in excess of $15
million. The performance fee is based on the preceding quarterly installments
subject to year-end adjustment. The management fee began February 4, 2000, the
date of the opening of the Riviera Black Hawk Casino. If there is any default
under the RBH Management Agreement, the Manager will not be entitled to receive
management fees but will still be entitled to intercompany service fees. At
September 30, 2001, RBH had accrued but not paid, and the Manager had
recognized, cumulative management fees of $1.5 million. Management fees earned
for the three and nine months ended September 30, 2001 and 2000 were $390,000
and $182,000 (for the three months, respectively) and $992,000 and $532,000 (for
the nine months, respectively). These management fees are eliminated in
consolidation.
15
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Three Months Ended September 30, 2001 Compared to Three Months Ended September
30, 2000
Special Factors Effecting Comparability of Results of Operations
The Riviera Black Hawk was in the development stage during the first quarter of
2000 until February 4, 2000 when it opened the casino. Accordingly, the results
of operations for the fiscal 2001 and fiscal 2000 results may not be comparable.
The following table sets forth, for the periods indicated, certain operating
data for the Riviera Las Vegas and Riviera Black Hawk. Operating income from
properties is presented as shown on the Condensed Consolidated Statements of
Operations.
Third Quarter Incr/ % Incr/
(In Thousands) 2001 2000 (Decr) (Decr)
---- ---- ------ ------
Net revenues:
Riviera Las Vegas $37,567 $39,883 ($2,316) -5.8%
Riviera Black Hawk 13,478 9,494 3,984 42.0%
Riviera Gaming Management 0 30 (30) 0
- -- ---- -
Total Net Revenues $51,045 $49,407 $1,638 3.3%
======= ======= ====== ====
Operating Income (Loss)
Riviera Las Vegas $716 $2,347 ($1,631) -68.6%
Riviera Black Hawk 2,297 54 2,243 4,151.9%
Riviera Gaming Management 0 30 (30) 0
- -- ---- -
Total Operating Income $3,013 $2,431 $582 23.9%
====== ====== ==== =====
EBITDA:(1)
Riviera Las Vegas $3,749 $5,979 ($2,230) -37.3%
Riviera Black Hawk 3,648 1,023 2,625 256.6%
Riviera Gaming Management 0 30 (30) 0
- -- -- -
Total EBITDA $ 7,397 $7,032 $365 5.2%
======= ====== ==== ====
EBITDA margin
Riviera Las Vegas 10.0% 15.0% -5.0%
Riviera Black Hawk 27.1% 10.8% 16.3%
Riviera Gaming Management 0 100.0% -100.0%
------ ------ --------
Total EBITDA 14.5% 14.2% .3 %
====== ====== ========
1 EBITDA consists of earnings before interest, income taxes, depreciation,
amortization, preopening expenses, and other, net. While EBITDA should not be
construed as a substitute for operating income or a better indicator of
liquidity than cash flow from operating activities, which are determined in
accordance with generally accepted accounting principles ("GAAP"), it is
included herein to provide additional information with respect to the ability of
the Company to meet its future debt service, capital expenditure and working
capital requirements. Although EBITDA is not necessarily a measure of the
Company's ability to fund its cash needs, management believes that certain
investors find EBITDA to be a useful tool for measuring the ability of the
Company to service its debt. EBITDA margin is EBITDA as a percent of net
revenues. The Company's definition of EBITDA may not be comparable to other
companies' definitions.
16
Riviera Las Vegas
Revenues
Net revenues decreased by approximately $2.3 million, or 5.8%, from $39.9
million in 2000 to $37.6 million in 2001 due primarily to decreased casino and
entertainment revenues partially offset by increased room revenues. Casino
revenues decreased by approximately $741,000, or 4.1%, from $17.9 million during
2000 to $17.2 million during 2001 due to a decrease in slot machine coin-in and
table game drop. The decrease resulted primarily from the slowing of the
national economy and the September 11 terrorist attacks. Entertainment revenues
decreased by approximately $659,000, or 11.0%, from $6.0 million during 2000 to
$5.3 million during 2001 due primarily to a decrease in Splash revenue as a
result of competition from the openings of new shows on the Las Vegas Strip.
Room revenues increased by approximately $126,000, or 1.3%, from $9.9 million
2000 to $10.0 million during 2001 as a result of an increase in average room
rate while hotel occupancy decreased from 98.3% in 2000 to 93.2% in 2001 due to
the events of September 11, 2001. Other revenues decreased by approximately
$344,000, or 14.1%, from $2.4 million during 2000 to $2.1 million during 2001
due primarily to decreased telephone revenues as a result of guests using cell
phones with unlimited long distance programs instead of using phones provided in
the hotel. Promotional allowances increased by approximately $527,000, or 18.1%,
from $2.9 million during 2000 to $3.4 million during 2001 due primarily to a
higher number of complimentary entertainment tickets issued to promote sales
volume in 2001.
Direct Costs and Expenses of Operating Departments
Casino expense increased by approximately $927,000, or 9.7%, from $9.6 million
during 2000 to $10.5 million during 2001, due to increased casino payroll and
promotional expense. Entertainment costs decreased by approximately $844,000, or
17.8%, from $4.7 million during 2000 to $3.9 million during 2001 which
corresponds to the decrease in revenues.
Other Operating Expenses
General and administrative expenses decreased by approximately $236,000, or
3.0%, from $8.0 million for 2000 to $7.8 million in 2001 due primarily to higher
energy costs offset by lower corporate incentive and ESOP costs which are tied
to EBITDA. Riviera Las Vegas depreciation and amortization decreased by
approximately $411,000, or 10.8%, from $3.8 million during the 2000 period to
$3.4 million during the 2001 period as $28.3 million of furniture and equipment
acquired in 1993 and 1994 became fully depreciated since June 30, 2000.
17
Income from Operations
Income from operations in Las Vegas decreased by approximately $1.6 million due
to decreased net revenues, increased casino expense and increased energy costs
offset by decreased depreciation expense, corporate incentive and entertainment
expense.
EBITDA
Riviera Las Vegas EBITDA, as defined, decreased by approximately $2.2 million,
or 37.3%, from $6.0 million in 2000 to $3.8 million in 2001. The September 11
terrorist attacks, the slowing of the national economy and rising marketing
costs resulted in the decrease in Las Vegas EBITDA. During the same periods,
EBITDA margin decreased from 15.0 % to 10.0% of net revenues The September 11
terrorist attacks, the slowing of the national economy and rising marketing
costs resulted in the decrease in Las Vegas EBITDA.
Riviera Black Hawk
Revenues
Net revenues increased by approximately $4.0 million or 42.0%, from $9.5 million
in 2000 to $13.5 million in 2001. Casino revenues were $9.0 million in 2000 and
$12.7 million in 2001 as win per slot machine per day increased from $118 in the
third quarter of 2000 to $155 in 2001. The effect of the September 11 terrorist
attacks on Black Hawk revenues was minimal as it is considered a locals market.
Food and beverage revenues were approximately $1.4 million in 2001, of which
$803,000 was complimentary (promotional allowance). The World's Fare Buffet
restaurant replaced the coffee shop in the fourth quarter 2000 and has served as
a marketing tool increasing customer traffic and slot volume over the third
quarter of 2000 when the restaurant was a coffee shop. Entertainment revenue of
$134,000 was generated in the third quarter of 2001 for concerts and special
events, while there were no revenue generating concerts or special events in the
third quarter of 2000. Other revenues increased 12.6% to $116,000 due to
increased volume from ATM's.
Direct Costs and Expenses of Operating Departments
Casino expenses were approximately $5.9 million, or 46.5% of casino revenues
in the third quarter of 2001 compared with $5.2 million or 57.8% of
casino revenues in 2000. In 2001 the marketing effort was strengthened to target
high denomination slot players with additional VIP and direct mail marketing
resulting in increased membership in the slot club. Food and beverage
complimentary revenues are recorded as promotional allowances. The costs of food
and beverage complimentaries are allocated to the department authorizing the
complimentary.
18
Other Operating Expenses
General and administrative expenses were approximately $3.2 million, or 23.4% of
net revenues for 2001 compared with 29.7% of net revenues in 2000 due to
increased property tax and insurance expense for health insurance claims.
Depreciation and amortization increased from $787,000 in 2000 to $962,000 in
2001 due to additional capital expenditures of $5.2 million in the last 12
months.
Income from Operations
Income from operations in Black Hawk, Colorado increased approximately $2.2
million as a result of increased direct marketing and promotions for the casino
in the third quarter of 2001. In 2000, these programs had not yet been
instituted because business volume was being generated solely by the "newness
factor" of the property.
EBITDA
Riviera Black Hawk EBITDA, as defined, was $3.6 million, or 27.1% of net
revenues in the third quarter of 2001 compared with $1.0 million, or 10.8%, of
net revenues in 2000 for the reasons discussed above.
Consolidated Operations
Other Income (Expense)
Interest expense on the $175 million 10% First Mortgage Notes issued by Riviera
Holdings Corporation of $4.4 million plus related amortization of loan fees and
equipment and other financing costs of $1.6 million totaled approximately $5.0
million in 2001 and 2000. Interest expense on the remaining $34.9 million 13%
First Mortgage Notes issued by Riviera Black Hawk in June 1999 combined with its
interest from capital leases totaled $1.6 million in the third quarter of 2001
compared to $1.9 million for the third quarter of 2000. Approximately $10.1
million of the $45 million 13% First Mortgage Notes have been repurchased by
Riviera Black Hawk, Inc.
Net Income (Loss)
Net loss increased $142,000 or 6.0% from a net loss of $2.4 million in 2000 to a
net loss of $2.5 million in 2001 as the result of increased income from
operations as discussed above offset by decreased interest income and decreased
benefit from income taxes.
EBITDA
Consolidated EBITDA, as defined, increased by approximately $366,000, or 5.2%,
from $7.0 million in 2000 to $7.4 million in 2001. During the same periods,
EBITDA margin increased from 14.2% to 14.5% of net revenues.
19
Nine Months Ended September 30, 2001 Compared to Nine Months Ended September 30,
2000
Special Factors Effecting Comparability of Results of Operations
Riviera Black Hawk was in the development stage during the first quarter of 2000
until February 4, 2000 when it opened the casino. Accordingly, the results of
operations for the fiscal 2001 and fiscal 2000 results may not be comparable.
The following table sets forth, for the periods indicated, certain operating
data for Riviera Las Vegas and Riviera Black Hawk. EBITDA from properties for
the purposes of this table includes preopening expense. Operating income from
properties is presented as shown on the Condensed Consolidated Statements of
Operations.
Nine Months Ended Incr/ % Incr/
(In Thousands) 2001 2000 (Decr) Incr/(Decr)
---- ---- ------ -----------
Net revenues:
Riviera Las Vegas $121,634 $126,139 ($4,505) -3.6%
Riviera Black Hawk 36,438 25,670 10,768 42.0%
Riviera Gaming Management 0 232 (232) 0
------- -------- ------ ----
Total Net Revenues $158,072 $152,041 $6,031 4.0%
======== ======== ====== ====
Operating Income (Loss)
Riviera Las Vegas $9,488 $12,314 ($2,826) -22.9%
Riviera Black Hawk 5,251 960 4,291 447.0%
Riviera Gaming Management 0 88 (88) -100.0%
------- ------- ------ -------
Total Operating Income $14,739 $13,362 $1,377 10.3%
======= ======= ====== =====
EBITDA:(1)
Riviera Las Vegas $18,660 $23,010 ($4,350) -18.9%
Riviera Black Hawk 9,009 4,729 4,280 90.5%
Riviera Gaming Management 0 88 (88) -100.0%
-------- ------- ------- -------
Total EBITDA $ 27,669 $27,827 ($158) -0.6%
======== ======= ====== =====
EBITDA margin
Riviera Las Vegas 15.3% 18.2% -2.9%
Riviera Black Hawk 24.7% 18.4% 6.3%
Riviera Gaming Management 0 37.9% -100.0%
----- ----- -------
Total EBITDA 17.5% 18.3% -0.8%
===== ===== =======
1 EBITDA consists of earnings before interest, income taxes, depreciation,
amortization, preopening expenses, and other, net. While EBITDA should not be
construed as a substitute for operating income or a better indicator of
liquidity than cash flow from operating activities, which are determined in
accordance with generally accepted accounting principles (`GAAP"), it is
included in herein to provide additional information with respect to the ability
of the Company to meet its future debt service, capital expenditures and working
capital requirements. Although EBITDA is not necessarily a measure of the
Company's ability to fund its cash needs, management believes that certain
investors find EBITDA to be a useful tool for measuring the ability of the
Company to service its debt. EBITDA margin is EBITDA as a percent of net
revenues. The Company's definition of EBITDA may not be comparable to other
companies' definitions.
20
Riviera Las Vegas
Revenues
Net revenues decreased by approximately $4.5 million, or 3.6%, from $126.1
million in 2000 to $121.6 million in 2001 due primarily to decreased casino and
entertainment revenues partially offset by increased room revenues. Casino
revenues decreased by approximately $3.4 million, or 5.9%, from $56.9 million
during 2000 to $53.6 million during 2001 due to a decrease in slot machine win
as a result of a decrease in show attendance, event participation offset by an
increase in convention room mix. Room revenues increased by approximately $2.0
million, or 6.3%, from $32.4 million in 2000 to $34.5 million in 2001 due to
increased convention room revenue. Convention room revenues were up $1.7 million
or 13.0% from 2000. Entertainment revenues decreased by approximately $1.6
million, or 8.3%, from $18.6 million during 2000 to $17.0 million during 2001
due primarily to a decrease in Splash revenue as result of competition from the
openings of new shows on the Las Vegas Strip. Other revenues decreased by
approximately $720,000, or 9.6%, from $7.5 million during 2000 to $6.8 million
during 2001 due primarily to decreased telephone and retail shop revenues.
Direct Costs and Expenses of Operating Departments
Casino expenses increased $1.0 million, or 3.4%, from $30.5 million to $31.5
million due to increased payroll and promotional expense. Entertainment costs
decreased by approximately $2.0 million, or 14.5%, from $14.3 million during
2000 to $12.3 million during 2001 due to the corresponding decrease in
entertainment revenues.
Other Operating Expenses
General and administrative expenses increased by approximately $157,000,or 0.7%,
from $23.3 million in 2000 to $23.5 million in 2001 due primarily to higher
energy costs. Riviera Las Vegas depreciation and amortization decreased by
approximately $1.0 million, or 9.6%, from $11.2 million during the 2000 period
to $10.2 million during the 2001 period as $28.3 million of furniture and
equipment acquired in 1993 and 1994 became fully depreciated since June 30,
2000.
Income from Operations
Income from operations in Las Vegas decreased by approximately $2.8 million due
to decreased net revenues, increased casino expense and increased energy costs
offset by decreased depreciation and entertainment expense.
EBITDA
Riviera Las Vegas EBITDA, as defined, decreased by approximately $4.3 million,
or 18.9%, from $23.0 million in 2000 to $18.7 million in 2001 for reasons
described above. During the same periods, EBITDA margin decreased from 18.2 %
to 15.3% of net revenues due to the slowing of the national economy and the
September 11 terrorist attacks.
21
Riviera Black Hawk
Revenues
Net revenues increased by approximately $10.8 million, or 42.0%, from $25.7
million in 2000 to $36.4 million in 2001. Casino revenues were $24.4 million in
2000 and $34.6 million in 2001 as win per slot machine per day increased from
$110 in the 2000 to $149 in 2001.
Food and beverage revenues were approximately $3.9 million in 2001, of which
$2.6 million was complimentary (promotional allowance). The World's Fare Buffet
restaurant replaced the coffee shop in fourth quarter 2000 and has served as a
marketing tool increasing customer traffic and slot volume over second quarter
of 2000 when the restaurant was a coffee shop. Entertainment revenue of $225,000
was generated in 2001 for concerts and special events. Other revenues increased
40.8% to $350,000, primarily from increased ATM fees.
Direct Costs and Expenses of Operating Departments
Casino expenses were approximately $17.0 million, or 49.1% of casino revenues in
2001 compared with $12.7 million or 52.0% of casino revenues in 2000. In 2001
the marketing effort was strengthened to target higher end players with
additional VIP and direct mail marketing resulting in increased membership in
the slot club. Food and beverage complimentary revenues are recorded as
promotional allowances under "GAAP". The costs of food and beverage
complimentaries are allocated to the department authorizing the complimentary.
Other Operating Expenses
General and administrative expenses were approximately $8.8 million, or 24.2% of
net revenues for 2001 compared with $7.0 million or 27.3% of net revenues in
2000. Depreciation and amortization increased from $2.0 million in 2000 to $2.8
million in 2001, because Riviera Black Hawk was in a development stage until
February 4, 2000 and $5.2 million of capital expenditures in the last 12 months
increased the depreciable asset base.
Income from Operations
Income from operations in Black Hawk, Colorado increased approximately $4.3
million due to increased revenues as a result of increased direct costs for
marketing and promotion for the casino in 2001. In 2000, these programs had not
yet been instituted because business volume was being generated solely by the
"newness factor" of the property.
EBITDA
Riviera Black Hawk EBITDA, as defined, was $9.0 million, or 24.7% of net
revenues for nine months ended September 30, 2001 compared with $4.7 million, or
18.4% of net revenues in 2000.
22
Consolidated Operations
Other Income (Expense)
Interest expense on the $175 million 10% First Mortgage Notes issued by Riviera
Holdings Corporation of $13.1 million plus related amortization of loan fees and
equipment and other financing costs totaled approximately $15.1 million in 2001
and 2000. Interest expense on the 13% First Mortgage Notes issued by Riviera
Black Hawk in June 1999 combined with its interest from capital leases totaled
$5.1 million for the nine month period ended September 30, 2001 compared to $5.6
million for the same period of 2000. Approximately $10.1 million in 13% First
Mortgage Notes have been repurchased.
Net Loss
The consolidated net loss increased $994,000 from $2.2 million in the first nine
months of 2000 to $3.2 million in 2001 due primarily to decreased interest
income, capitalized interest and Riviera Black Hawk preopening expenses.
Also the insurance recovery of $1.2 million for litigation costs on the
Paulson and Morgans Waterfall litigation recorded in the 2000 earnings.
EBITDA
Consolidated EBITDA, as defined, decreased by approximately $158,000, or 0.6%,
from $27.8 million in 2000 to $27.7 million in the first nine months of 2001 due
to increasing profitability at Riviera Black Hawk which was offset by reduced
cash flows at Riviera Las Vegas. During the same periods, EBITDA margin
decreased from 18.3% to 17.5% of net revenues.
Liquidity and Capital Resources
At September 30, 2001, the Company had cash and cash equivalents of $44.1
million. Cash and cash equivalents decreased $8.1 million during the nine months
of 2001 as a result of $2.2 million in capital expenditures at Riviera Black
Hawk, $6.9 million in capital expenditures for Riviera Las Vegas and scheduled
payments of $2.1 million of debt offset by $8.2 million provided from
operating activity. Finally, Riviera Black Hawk purchased $3.5 million of its
13% First Mortgage Bonds in private transactions during 2001.
Management believes that cash flow from operations, combined with the $44.1
million cash and cash equivalents will be sufficient to cover the Company's debt
service and enable investment in budgeted capital expenditures for the next
twelve months for both the Las Vegas and Black Hawk properties.
Cash flow from operations is not expected to be sufficient to pay 100% of the
principal of the $175 million 10% Notes ("the 10% Notes") at maturity on August
15, 2004 and may not be sufficient to pay the remaining $35 million of 13% Notes
("the 13% Notes") at maturity on May 1, 2005. Accordingly, the ability of the
23
Company and its subsidiary to repay the 10% Notes and 13% Notes at maturity will
be dependent upon its ability to refinance those notes. There can be no
assurance that the Company and its subsidiary will be able to refinance the
principal amount of the 10% and 13% Notes at maturity. The 10% Notes are not
redeemable at the option of the Company until August 15, 2001, and thereafter
are redeemable by the terms of its call provisions at premiums beginning at
105.0% and declining each subsequent year to par in 2003. Riviera Black Hawk,
Inc. may redeem 100% of the 13% Notes beginning May 1, 2002, by the terms of its
call provisions at premiums beginning at 106.5% and declining each subsequent
year to par in 2004. Based upon the bonds outstanding at September 30, 2001 the
combined call premiums total $11.0 million at May 1, 2002 and are reduced to
$6.7 million at August 15, 2002, $5.5 million at May 1, 2003, $1.1 million at
August 15, 2003 and zero after May 15, 2004.
The 10% Notes and 13% Notes provide that, in certain circumstances, the Company
and its subsidiary must offer to repurchase the 10% and 13% Notes upon the
occurrence of a change of control or certain other events. In the event of such
mandatory redemption or repurchase prior to maturity, the Company and its
subsidiary would be unable to pay the principal amount of the 10% Notes and 13%
Notes without refinancing.
The 10% Notes contain certain covenants, which limit the ability of the Company
and its restricted subsidiaries (and its unrestricted subsidiary Riviera Black
Hawk, Inc. under the 13% Notes), subject to certain exceptions, to: (i) incur
additional indebtedness; (ii) pay dividends or other distributions, repurchase
capital stock or other equity interests or subordinated indebtedness; (iii)
enter into certain transactions with affiliates; (iv) create certain liens; sell
certain assets; and (v) enter into certain mergers and consolidations. As a
result of these restrictions, the ability of the Company and its subsidiaries to
incur additional indebtedness to fund operations or to make capital expenditures
is limited. In the event that cash flow from operations is insufficient to cover
cash requirements, the Company and its subsidiaries would be required to curtail
or defer certain capital expenditure programs under these circumstances, which
could have an adverse effect on operations.
The 13% Notes also contain certain covenants, which limit the ability of the
Company and its restricted subsidiaries, subject to certain exceptions, to: (i)
incur additional indebtedness; (ii) pay dividends or other distributions,
repurchase capital stock or other equity interests or subordinated indebtedness;
(iii) enter into certain transactions with affiliates; (iv) create certain
liens; sell certain assets; and (v) enter into certain mergers and
consolidations. As a result of these restrictions, the ability of the Company to
incur additional indebtedness to fund operations or to make capital expenditures
is limited. In the event that cash flow from operations is insufficient to cover
cash requirements, the Company would be required to curtail or defer certain of
their capital expenditure programs which could have an adverse effect on the
Company's operations.
At September 30, 2001, the Company believes that it is in compliance with the
covenants of both the 10% Notes and the 13% Notes.
Recently Adopted Accounting Standards
The Financial Accounting Standards Board ("FASB") issued Statement of Financial
Accounting Standards ("SFAS") SFAS No. 133, "Accounting for Derivatives," which
is effective for fiscal years beginning after June 15, 2000. This statement
24
defines derivatives and requires qualitative disclosure of certain financial and
descriptive information about a company's derivatives. The Company adopted SFAS
No. 133 in the quarter ending March 31, 2001. The adoption of SFAS 133 had no
impact on the Company or the Company's consolidated financial statements.
The Emerging Issues Task Force ("EITF") of the American Institute of Certified
Public Accountants issued EITF No. 00-22 titled "Accounting for "Points" and
Certain Other Timed-Based Sales Incentive Offers, and Offers for Free Products
or Services to Be Delivered in the Future" on January 18, 2001. The EITF
concluded that when a company or vendor offers to a customer (a) free or
discounted products or services that will be delivered (either by the vendor or
by another unrelated entity) at a future date (1) as a result of a single
revenue transaction with the customer or (2) only if the customer completes a
specified cumulative level of revenue transactions with the vendor or remains a
customer of the vendor for a specified time period and (b) a rebate or refund of
a determinable cash amount only if the customer completes a specified cumulative
level of revenue transactions with the vendor or remains a customer of the
vendor for a specified time period, such rebates should be reported as a
reduction of revenues. This EITF was required to be adopted by the Company
during the first quarter of 2001. As a result of adopting EITF 00-22, the
Company reclassified approximately $1.1 million and $1.5 million respectively of
such sales incentive offers "Points" from Casino operating expense to net
against Casino revenues for the three months and nine months ending September
30, 2000.
The Emerging Issues Task Force of the American Institute of Certified Public
Accountants ("EITF") issued EITF No. 00-14 Titled "Accounting for Certain Sales
Incentives" on April 18, 2001. The Company offers such sales incentives as "Cash
Vouchers". The EITF concluded that when a company or vendor offers its customers
sales incentives including discounts, coupons, rebates, and free products or
services, such sales incentives should be reported as a reduction of revenues.
This EITF is required to be adopted by the Company during the fourth quarter of
2001 and early adoption is permitted. The Company chose to adopt this EITF in
the first quarter of 2001. As a result of adopting EITF 00-14, the Company
reclassified approximately $833,000 and $1.5 million respectively of such sales
incentive offers "Cash Vouchers" from Casino operating expense to net against
Casino revenues for the three months and nine months ending September 30, 2000.
Recently Issued Accounting Standards
In July 2001, the Financial Accounting Standards Board ("FASB") issued Statement
of Financial Accounting Standards No. 141 ("SFAS 141"), "Business Combinations."
SFAS 141 requires the purchase method of accounting for business combinations
initiated after June 30, 2001 and eliminates the pooling-of-interests method.
The Company does not believe that the adoption of SFAS 141 will have a
significant impact on its financial statements.
In July 2001, the FASB issued SFAS No.142 ("SFAS 142"), "Goodwill and Other
Intangible Assets", which is effective January 1, 2002. SFAS 142 requires, among
other things, the discontinuance of goodwill amortization. In addition, the
standard includes provisions for the reclassification of certain existing
recognized intangibles as goodwill, reassessment of the useful lives of existing
recognized intangibles, reclassification of certain intangibles out of
25
previously reported goodwill and the identification of reporting units for
purposes of assessing potential future impairments of goodwill. SFAS 142 also
requires the Company to complete a transitional goodwill impairment test six
months from the date of adoption. The Company is currently assessing but has not
yet determined the impact of SFAS 142 on its financial position and results of
operations.
The FASB issued SFAS No. 143 Accounting for Asset Retirement Obligations in
June of 2001. This Statement addresses financial accounting and reporting for
obligations associated with the retirement of tangible long-lived assets and the
associated asset retirement costs. This Statement applies to all entities. It
applies to legal obligations associated with the retirement of long-lived assets
that result from the acquisition, construction, development and (or) the normal
operation of a long-lived asset, except for certain obligations of lessees. This
Statement is effective for financial statements issued for fiscal years
beginning after June 15, 2002. The Company is currently assessing, but has not
yet determined the impact of SFAS No. 143 on its financial position and results
of operations.
The FASB issued SFAS No. 144 Accounting for the Impairment or Disposal of
Long-Lived Assets in August of 2001. This Statement address financial
accounting and reporting for the impairment or disposal of long-lived assets and
supersedes FASB Statement No. 121, Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to Be Disposed Of, and the accounting and
reporting provisions of APB Opinion No. 30, Reporting the Results of
Operations-Reporting the Effects of Disposal of a Segment of a Business, and
Extraordinary, Unusual and Infrequently Occurring Events and Transactions, for
the disposal of a segment of a business (as previously defined in that Opinion).
This Statement also amends ARB No. 51, Consolidated Financial Statements, to
eliminate the exception to consolidation for a subsidiary for which control is
likely to be temporary. The provisions of this Statement are effective for
financial statements issued for fiscal years beginning after December 15, 2001,
and interim periods within those fiscal years. The Company is currently
assessing, but has not yet determined the impact of SFAS No. 144 on its
financial position and results of operations.
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Forward Looking Statements
This report includes "forward-looking statements" within the meaning of Section
21E of the Securities Exchange Act of 1934, as amended. Statements in this
report regarding future events or conditions, including statements regarding
industry prospects and the Company's expected financial position, business and
financing plans, are forward-looking statements. Although the Company believes
that the expectations reflected in such forward-looking statements are
reasonable, it can give no assurance that such expectations will prove to have
been correct. Important factors that could cause actual results to differ
materially from the Company's expectations are disclosed in this report as well
as the Company's most recent annual report on Form 10-K, and include the
Company's substantial leverage, the risks associated with the expansion of the
Company's business, as well as factors that affect the gaming industry
generally. Readers are cautioned not to place undue reliance on these
forward-looking statements, which speak only as of their dates. The Company
undertakes no obligations to publicly update or revise any forward-looking
statements, whether as a result of new information, future events or otherwise.
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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
Market risks relating to our operations result primarily from changes in
interest rates. We currently invest our cash and cash equivalents in U.S.
Treasury Bills with maturities of 30 days or less.
As of September 30, 2001, we had $220.7 million in borrowings. The borrowings
include $175 million in notes maturing in 2004, $35 million remaining notes
maturing in 2005 and capital leases maturing at various dates through 2005.
Interest under the $175 million notes is based on a fixed rate of 10%. Interest
on the $35 million notes is 13% with contingent interest payable if certain
operating results are achieved. The equipment loans and capital leases have
interest rates ranging from 5.2% to 13.5%. The borrowings also include $.6
million in a special improvement district bond offering with the City of Black
Hawk. The Company's share of the debt on the SID bonds is payable over ten years
beginning in 2000. The special improvement district bonds bear interest at 5.5%.
Other borrowings relate to leases.
Interest Rate Sensitivity
Principal (Notational Amount by Expected Maturity)
Average Interest Rate
(Amounts in thousands) Fair Value
2001 2002 2003 2004 2005 Thereafter Total at 9/30/01
Long Term Debt Including Current Portion
Equipment loans and
capital leases, Las Vegas $ 306 $ 1,201 $ 1,285 $ 1,005 $ 17 $ 3,814 $ 3,814
Average interest rate 8.0% 7.8% 7.8% 8.4% 8.4%
10% First Mortgage Note, Las Vegas $ 174,116 $ 174,116 $ 143,500
Average interest rate 10.0%
Equipment loans
Black Hawk, Colorado $ 3 $ 8 $ 11 $ 11
Average interest rate 11.2% 11.2%
Capital leases
Black Hawk, Colorado $ 434 $ 1,848 $ 2,044 $ 2,263 $ 658 $ 7,247 $ 7,247
Average interest rate 10.8% 10.8% 10.8% 10.8% 10.8%
Special Improvement District Bonds
Black Hawk, Colorado $ 55 $ 68 $ 71 $ 76 $ 81 $ 221 $ 572 $ 572
Average interest rate 5.5% 5.5% 5.5% 5.5% 5.5% 5.5%
13% First Mortgage Note
Black Hawk, Colorado $ 34,941 $ 34,941 $ 34,941
Average interest rate 13.0%
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Part II. OTHER INFORMATION
Legal Proceedings
The Company is a party to several routine lawsuits, both as plaintiff and as
defendant, arising from the normal operations of a hotel. The Company does not
believe that the outcome of such litigation, in the aggregate, will have a
material adverse effect on its financial position or results of its operations.
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Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
RIVIERA HOLDINGS CORPORATION
By: /s/ William L. Westerman
William L. Westerman
Chairman of the Board and
Chief Executive Officer
By: /s/ Duane Krohn
Duane Krohn
Treasurer and
Chief Financial Officer
Date: November 12, 2001
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Riviera Holdings Corporation
Form 10Q
September 30, 2001
Exhibits
None
31